Health Reform and the Deficit

When the Congressional Budget Office announced last week that Harry Reid’s $848 billion health reform proposal was “fully paid for,” Democrats chirped like robins in April. The draft included enough spending cuts, provider incentives and tax increases to cover the cost of providing insurance coverage to 30 million US citizens!

But those weren’t the only tweets in the aviary, because the CBO also found the bill wouldn’t come close to delivering on the Democrats more ambitious claim that health reform would substantially cut the nation’s bloated deficit.

Reid’s bill, the CBO concluded, would slice no more than 2% from the deficit by 2020, at which point it is projected to exceed $9,000,000,000,000, give or take a few trillion.

The Democrats’ lofty ambitions were doomed when Reid combined 2 preliminary Senate committee bills into his magnum opus. On orders to placate Big Labor, he nixed the tax on Cadillac insurance plans and knowing his compatriots in the House wouldn’t stand for it, he jettisoned a proposal for an independent commission which was supposed to be given a mandate to restrain Medicare spending.

Those 2 gems were widely perceived to be among the most effective ways to fund The Big Do-Over but that’s politics for ya’.

“The hope that health-care reform would take care of our budget problem has evaporated,” sighed Isabel Sawhill, a fiscal expert at the Brookings Institution, in an interview with the Washington Post.

Several ardent supporters of reform already concede this point, including Brookings Institution health policy expert Henry Aaron, who endorsed most aspects of Reid’s bill but added that it “is necessary but not sufficient for dealing with our long-term budget problems.”

To the dismay of White House officials, the CBO projects that 2 of the Big O’s pet projects, EHR Bonanza Days and comparative effectiveness research will generate only modest savings. The CBO also concluded that contrary to popular belief, expanding preventive services will actually increase costs (at least until such time as the polar ice caps melt, after which time it doesn’t matter).

Meanwhile, Republicans beavered feverishly to exploit a proposal in the Reid bill that cuts Medicare spending by $400 billion. Three separate times last week they forced a vote on the matter, just so everyone could see that those evil Democrats were trying to take away Granny’s hospital bed. (Left unsaid was that before last week, Republicans spent 30 years saying that Medicare was a bloated, inefficient government bureaucracy in need of a good, sharp scalpel.)

The GOP lost all 3 votes, but if they should win a future showdown on the matter, it would sink the ship faster than an iceberg in the North Atlantic.

For their part, White House officials went into Rope-a-Dope mode, claiming they never said health reform would reduce deficits in the short term, but that it would trigger a process that could avert fiscal catastrophe down the road.

“The legislation is reflecting all the ideas that have been put forward in health policy circles for years and creating a feedback-and-continuous-improvement loop that will allow us to learn as we go,” said White House Budget Director Peter Orszag.

As the circus continued, University of Chicago economist David Meltzer encouraged spectators to look at the the whole thing as the first step in a reform process that will take decades to complete. “This is like turning the Titanic,” Meltzer told the Post.